The Pound fell today just as I expected, however I missed the move as I was waiting for a test of $1.60 and the spot market only reached around $1.5925, but that's ok there is always next time. It's good to see my strategies are on the right side of the market though.
I'm watching this one carefully because the minutes of the BOE meeting last week may show some surprises when they are released on Wednesday. If so, this one could turn around again, in the meantime I'll watch it drop and hope it drops a lot, the further it falls the better the snap back will be if we see more BOE members voting for a rate hike in the minutes. The CPI numbers for the UK out this week will have put pressure on members to raise rates and although they may feel it's too early to do so at present more members may begin to vote in favour of such a move.
I'll look for a good price point to get long and i'll post that here, as for the analysis, checkout the next weekly tech outlook.
The downside risk to this trade would be a continued strengthening in the US Dollar brought on by either the mistaken believe that the recent rise in US bond yields is a sign of recovery or conversely a return to risk aversion if the bond market participants start to get that sickly feeling that all is not well with America's national debt.
The upside risks are that Debaser Ben stealthily increases bond purchases over the next few weeks to stem the rise in yields in order to keep America's interest payments at lower levels. This would help bring down yields and weaken the dollar at the same time, two of the key objectives many believe the Fed are aiming for.
Time will tell, but its important to map out a game plan for both scenarios, as many are now openly calling for people to 'Fight the Fed'. The push and pull between funds leaving the bond market and the Fed taking up slack will likely create volatility over the next few weeks/months which WILL translate to the stock market so take care.
The real question is, where does all the money that leaves bonds find a home? If the answer really is the stock market, which is possible, then who knows where this rally ends. Personally I just don't think people are ready to bid stocks back to levels not seen since 2007/8 so soon after being burned the last time, but hey, it's not my money (or theirs).
The more likely outcome is that bond yields settle at these levels for a while and begin to drop slowly again when the Fed starts taking up the slack. While the money that comes out makes it's way to stocks and commodities. This could be a terrible move if it turns out that we are at a short term stock market top. The problem is that funds are faced with very few options at present, they have to make the least bad choice.